Is the U.S. Auto Industry Ready for Economic Recovery?

1. Better manage their portfolios, focusing on the markets where they have the greatest capabilities and opportunity to create a sustained competitive advantage. Some companies can prosper making disparate components, but most do not have the resources and skills to do this well. Once they have narrowed their strategic focus, they should ensure they have the capabilities in place to meet changing market needs and sourcing requirements. (For example, they may need to develop a global manufacturing capability.)

2. Continue to aggressively manage costs. Suppliers have successfully reduced operational and structural costs during the downturn. Now, they need to make sure that these expenses don’t creep back in as volumes ramp up. They must also discipline themselves to stop chasing vehicle programs that cost more than they return in the long run. Often, these OEM orders are drawn from unrealistic volume projections by the automakers that the suppliers accept credulously, even if the economics don’t make sense. When possible, suppliers and OEMs should promote collaborative cost-based agreements that give automakers full transparency into relevant supplier operations and that allow suppliers to earn a fair return on investment.

3. Recognize that industry consolidation is likely to intensify. Every supplier must proactively assess the industry structure for each of its core businesses and reconsider its role: Is it a buyer or a seller?

4. Accelerate efforts to find greater leverage with their high-quality product lines. Every supplier must innovate wisely, focus on features that customers are willing to pay for, respond directly to consumer demand, and establish itself as the company that is best positioned to help solve an OEM’s problems.

You don’t need a survey to know that the U.S. auto industry is in a period of extraordinary transition. Whether considering the development of alternative drive trains, the need to find ways to fine-tune designs and manufacturing processes, or the raft of new global competitors, it’s fair to say that only the most flexible, lean, and well-managed companies will survive. With that in mind, perhaps the survey’s greatest value is its central finding: Despite the general optimism in the auto industry today, as well as the real improvements in efficiency, quality, and lean practices that have been made, many executives are still bracing themselves for further change. They will need all the optimism — and the skill — they can muster.

Author Profiles:

Scott Corwin is a partner with Booz & Company based in New York. He has extensive experience in developing enterprise transformation strategies for clients in the automotive, media, information, and consumer industries.

Brian Collie is a principal with Booz & Company based in Chicago. He specializes in working with automotive and industrial companies in business unit strategy and transformation.

Patrick Mulcahy is a senior associate with Booz & Company based in Cleveland. He focuses on product strategy and M&A for automotive and industrial clients.

Also contributing to this article were Booz & Company Senior Associate Tim Lepczyk, Associate Gaurav Panwar, and Consultant Malavika Srinivasan.

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